Overcome obstacles to build a reliable supplier network

Associations and buying groups can help alleviate issues faced by small and mid-sized manufacturers when trying to develop a smoother supply chain.

Mike McDonald, Prime Advantage

10/13/2014

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Adequately managing your supply base can be a challenging endeavor for manufacturers. Supplier performance, on-time deliveries, contract compliance, quality, sudden demand shocks, and natural disasters are just a few of the issues that keep supply chain professionals on their toes.

Large organizations can allocate more resources to supply chain management and procurement departments, but many small and mid-sized manufacturers (SMBs) don’t enjoy the same benefits. What is the best path for these SMBs to take to ensure they’re partnered with the best suppliers for their present and future needs?

There are several resources that SMBs can utilize to give them better visibility to the best supply options. Information is abundant these days through blogs, social network groups, and even industry associations. Group purchasing organizations (GPOs) are another resource for manufacturers.

Prime Advantage has talked with thousands of companies who struggle to find a reliable supplier network because they try to do all the work themselves. Whether your company is a member of a buying group, industry association or has another method for gathering supplier intelligence, here are five key issues that we see small and mid-sized manufacturers regularly face when trying to build their network, as well as some proven solutions to finding reliable connections.

1. Our company has limited resources (staff and time constraints) to be able to effectively manage a complex supplier base, so we often turn to the Internet to comparison shop and fill our needs.

If you asked your purchasing department what its top constraint was to achieving greater results, more times than not the answer would be “not enough resources.” Technology has certainly helped in this area. At no time in history has information been so readily at hand. But, managing that information and making it actionable takes time and people.

For smaller companies, purchasing tends to be performed at a more tactical level: Executing orders, keeping the production line moving, and managing the top one or two spends. The essential actions to source new products, build relationships with key vendors, and qualify secondary sources often get neglected. Being a member of an association or buying group can often times alleviate some of these issues.

“Through our buying group, we have been able to develop truly innovative programs with some key suppliers that would have otherwise not been possible,” said Joe Carlson, president, Lakeside Manufacturing, a Milwaukee-based maker of stainless steel carts, mobile equipment and systems. “Our buying group makes our entire supplier management process easier to start and maintain.”

“Our buying group provides a superior format through which members and suppliers benefit their respective companies,” said Steve Romanelli, president, Core Pipe Products in Carol Stream, Ill., a manufacturer of stainless and alloy pipe fittings and flanges. “The interaction throughout this network has driven significant savings for all members while substantially growing the business prospects for our suppliers.

Small manufacturers also feel the impact of the global economy, and this sometimes means a need to open their supply base. Members of an association or buying group have unlimited exposure to a network’s elite supply base through conferences and other events. A middleman from the group with industry expertise can also facilitate key buyer-seller relationships throughout the year.

“We take advantage of the broad range of qualified suppliers and buy services, raw materials and components through our GPO. The supplier approval process eliminates this costly step for us,” said Nestor Ibrahim, CEO, Grindmaster-Cecilware, a Louisville, Ken.-based maker of commercial cooking and beverage equipment with manufacturing operations in Kentucky, Illinois, New York and Thailand.

“One thing we absolutely love about the relationship with our GPO is that our sourcing partner is not giving us a ‘good enough’ price because we control all the price negotiations with suppliers in this network,” said Margaret Goolsby, purchasing manager, Franke Foodservice.

3. Limited supplier qualification and auditing process

How can you be certain that your local supply base offers you the best possible value? The only way to test this is through competition. If you don’t create a competitive environment for your suppliers, or if you solely source from local companies, you could put yourself at a competitive disadvantage.

“When we joined our buying group, it was like adding a person to our supply management team,” said Tony Smith, purchasing manager, Curt G. Joa Inc., a Wisconsin-based maker of machinery for the production of disposable products such as baby diapers. “Our GPO’s qualified supplier network has opened our organization to additional resources for products, plus developed relationships that have brought us new technological developments, and allowed us to reduce our vendor base.”

4. Limited negotiating power: For pricing and overall clout

An association or buying group has the volume of the entire member base to negotiate aggressive rebate and discount programs within its supplier network. A high amount of savings in aggregate purchasing clout ensures members are reducing their costs in strategic purchased items as well as indirect goods and services, lowering your total cost across a broad range of spend categories.

“The obvious benefit of our buying group is improved pricing,” said Peggy Magliari, director of materials at Knapheide Manufacturing, an Illinois-based maker of steel service truck bodies and platforms. “Also, it puts you in touch with suppliers that have already gone through a qualifying process, thus streamlining the process. When you are initially looking at new suppliers and you are looking at their background, it takes some time. Dealing with endorsed suppliers that you know other members have used is a huge benefit.”

“I have heard some procurement professionals suggest that you are leaving money on the table by using a GPO to source indirect items like office supplies or MRO,” said Lisa Catanzano, purchasing manager, The Montague Company, a California-based maker of commercial foodservice equipment. “We used to think the same thing before joining our buying group. Since then, we’ve found that it is really tough to beat the prices we can get on our indirect spend items.”

5. Inability to build depth in suppliers across categories

Building depth within the supply chain is a luxury many mid-sized manufactures just don’t have. Time and resources come in to play just as we mentioned earlier in this piece. Managing a relationship with a key supplier is only half the battle. Identifying key backup suppliers, submitting them through your audit process and managing those relationships, is the other half that typically doesn’t get done.

“Our buying group has introduced us to numerous suppliers, and the result of these relationships have produced substantial savings for us over the past 10 years,” said Glenn Ford, purchasing manager, Henny Penny, Inc., an Eaton, Ohio-based maker of commercial kitchen equipment. “Without it, we may have never established the relationships we now have, or reaped the benefits they have brought forward. We consider Prime Advantage and many of its suppliers to be true partners.”

“An MRO supplier was brought to us through our buying group, and this supplier picked up an account that is worth anywhere from $800,000 to a million dollars a year of imcremental business that they didn’t have before we met. We picked up the advantages of cost reduction, inventory reduction and having product where it needs to be when it needs to be there,” said Claud Juncker, director of purchasing, Pellerin Milnor, a Louisiana-based maker of commercial laundry equipment.

Mike McDonald is vice president, new business development for Prime Advantage.

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